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The wage gap with Australia: no improvement

Remember back in the 2008 election, the National Party set itself a target of wage parity with Australia by 2025? I looked at it two years ago when Bill English was talking about the wage gap as an advantage which would attract businesses to New Zealand. With Australia now not doing as well economically as it was (not helped by an austerity-minded, politically inept Government), this would have been the most likely time for the New Zealand Government to claim the wage gap is closing. Net migration to Australia has greatly reduced since then. But is that because the wage gap has closed? Or because jobs are getting harder to find in Australia?

It seems it is much more about employment. The wage gap is not closing, and in fact is still rising. Various measures of the hourly wage, adjusted for its purchasing power on either side of the Tasman, show a similar pattern: the gap fell between about 2005 and 2008 and then began to rise again. It has re-opened to be as bad as it ever was.

On one measure, the average hourly wage (including overtime), the wage gap was between 5% and 10% during the 1990s, rose to 22% in 2005, then fell to 11% in 2008. By the end of 2010 it was back to 22% and was still at 21% at the end of 2014.

That doesn’t take into account “benefits” in addition to wages such as the 9.5% contribution that Australian employers are required to make to their employees’ superannuation. On a measure including that, the pattern is similar to the average hourly wage but the gap is much bigger. It rose more or less steadily through the 1990s to a 45% peak in 2005. It fell to 34% in the year ending March 2009 and then began to rise again. By the year to March 2014 the gap was 42%.

So far we have measured purchasing power from an employee’s viewpoint – the prices of goods and services a household buys. From an employer’s viewpoint (which is the viewpoint
Bill English took) things look somewhat different. For Australian businesses thinking about setting up shop in New Zealand, the gap hasn’t increased to the same degree as for workers. For Australian businesses operating mainly in the domestic market thinking about using New Zealand to offshore parts of their operations such as call centres, things looked very rosy when the New Zealand dollar was relatively weak compared to the Australian dollar, but it is now strengthening, making even these operations less attractive.

Download the full bulletin: CTU Economic Bulletin 166